While scrolling through Twitter today, I came across an thread from David Park, Suhail, and other founders discussing a familiar challenge: hitting carrying capacity, the kiss of death if you don't pivot.
David shared how they predicted their ceiling at $600k MRR—something their team refers to as "the prophecy." Suhail added his own story, explaining how his company faced the same issue at $65M, noting that once you’ve dialed in your core product, typical product improvements rarely move the needle.
Carrying capacity is a concept that most startups don’t consider until they’re running headfirst into it Any business without a 100% Net Revenue Retention (NRR)—especially B2C—will inevitably face this issue as they scale. It really sucks, but is usually just a strong signal that change is needed on the horizon. What was fun about this thread is it literally mirrored my exact thinking on it, and is a good place to see complementary views if you're running into a similar problem, here's a bit of a breakdown 👇.
Carrying capacity refers to the point where your user acquisition is balanced by churn. Here’s a simple example: suppose you’re acquiring 300 new visitors daily through paid marketing or SEO. If you convert 30 of those into users, you’re looking at a solid 10% conversion rate. However, with a daily churn rate of 1.5%, you’ll lose 1.5% of your entire user base each day.
Let’s say you grow your total user base to 4,000. With this churn and acquisition pattern, you’ll eventually hit a point where your growth levels off. You’ll lose as many users as you’re bringing in, and that’s your carrying capacity.
Most companies assume that more users = more growth, but that’s not always true. At some point, churn catches up, and if you’re not addressing it, growth will stall.
Carrying Capacity=Daily Churn RateAverage Daily User Acquisition
To estimate when this will occur, monitor your user acquisition and churn rates over time. When your daily user acquisition rate is equal to your daily churn rate, your growth will plateau, indicating you’ve reached your carrying capacity.
Breaking Through Carrying Capacity: What It Really Means
Hitting your carrying capacity isn’t necessarily a bad thing. It’s just an indicator that your existing strategy has taken you as far as it can, and it’s time to evolve. You’ll likely need to do several things to keep growing:
- Attract New Users With a Different Message or Feature: You may have exhausted your current messaging and acquisition tactics. To bring in fresh users, you might need to reframe your value proposition or launch new features that address different pain points.
- Solve the “Leaky Bucket” Problem: No matter how well you are acquiring users, churn will continue to drain your growth potential. Reducing churn should be a primary focus. This involves improving user experience, addressing pain points, and even adding reactivation strategies for disengaged users.
- Push Annualization: If you’re struggling to retain users month-to-month, pushing for annual plans could smooth out your revenue and extend customer lifetime value. Annualization gives you a buffer against churn while giving users time to truly engage with your product.
- Expand Your Market or Vertical: One of the most effective ways to grow beyond your carrying capacity is to enter new markets or verticals. For example, if your business currently serves SMBs, expanding into the mid-market or enterprise space could unlock new growth opportunities.
Another area I don't seen enough folks focus on:
- Leverage Virality: When your users bring in new users, you can offset some of the churn sustainability. Viral loops, referral programs, and social sharing are all ways to create a growth engine that offsets churn and increases your carrying capacity.
Ideas for reducing churn
Even with a large Total Addressable Market (TAM) or viral loops, churn is the limiting factor. If you can reduce churn, you can continue to grow, even when user acquisition slows down. Some actionable steps include:
- Understand why they churn: A seamless onboarding process ensures new users understand your product’s value quickly, making them more likely to stick around. A cancellation flow can help identify why they're dropping off.
- Increase User Engagement: Ongoing touchpoints, like educational content or feature highlights, keep users engaged and invested in your product. A typical reason why users drop off is they don't see the value. If it's not adding value on a frequent basis chances are they'll drop.
- Create Reactivation Flows: Don’t wait for users to churn. Implement systems that trigger re-engagement emails or promotions when a user shows signs of leaving.
- Make the product better: By now you should have a list of 'why' users drop and a cohort analysis of the what the drop off rate looks like overtime. If you use Stripe or Shopify you get this out of the box. Now it's time to begin tackling that list as well as interviewing / studying the users WHO STAY to understand what behavior makes them retentive. A lot of PM's will do user interviews to get study retentive users, but I often find analytic tools give a better breakdown, just isolate the event history of the retentive grouping.
Expanding Verticals and Market Reach
When you hit carrying capacity, it’s a sign that you might need to explore new markets. If you’re serving SMBs, consider moving into mid-market or enterprise segments. Or, explore how your product can solve different problems within your existing customer base. This allows you to grow revenue from existing users even when new user acquisition slows down.
Conclusion: What Carrying Capacity Teaches You
Hitting your carrying capacity isn’t a failure—it’s a sign that your current growth model has reached its natural limit. By focusing on attracting new users with a fresh message, fixing the leaky bucket of churn, pushing annualization, and expanding into new markets or verticals, you can break through and continue scaling (exponential growth).
Every startup faces this ceiling at some point, and today’s thread on Twitter was a great reminder that even the most successful founders—like Suhail—run into this wall. I've experienced this many times and am currently experiencing this at a startup. I've typically found the after churn increasing the types of users who could benefit is the best way to outrun the beast.
